The Environment of Business III
Stakeholders <ul><li>Stockholders  : dividend </li></ul><ul><li>  price appreciation </li></ul><ul><li>Customers : product...
Stakeholders <ul><li>Suppliers : revenue through sale </li></ul><ul><li>  growth opportunity </li></ul><ul><li>Local commu...
The  Components  of  a Company’s  MACROENVIRONMENT Legislation and Regulation Societal Values and Lifestyles Population De...
Political and Legal <ul><li>Deregulation </li></ul><ul><li>Repeal of Glass-Steigall Act 1999 </li></ul><ul><li>Tort Reform...
Economy <ul><li>Interest rate </li></ul><ul><li>Exchange rate </li></ul><ul><li>Unemployment </li></ul><ul><li>Trend in GD...
Technology <ul><li>Reduced height of entry barrier </li></ul><ul><li>Biotechnology </li></ul><ul><li>Pollution/Global Warm...
Socio-cultural <ul><ul><li>Health Consciousness </li></ul></ul><ul><li>Postponement of family formation </li></ul><ul><li>...
Demography <ul><li>Aging population  </li></ul><ul><li>Rising affluence </li></ul><ul><li>Greater disparities in income le...
Global <ul><li>WTO </li></ul><ul><li>Currency Exchange Rate </li></ul><ul><li>Emergence of China and India </li></ul>
#1. Dominant Economic Traits <ul><li>Market Size </li></ul><ul><li>Scope of Competition (Local, Regional, National, Global...
#2  Porter’s Five  Forces Substitute Products (of firms in other industries) Suppliers of Key Inputs Buyers Potential New ...
Bargaining Power of Buyers <ul><li>- Many small companies and few buyers,  Large buyers </li></ul><ul><li>- Buyers can swi...
Suppliers <ul><li>- Product has few substitutes and are important to the buyers </li></ul><ul><li>- Products are different...
Rivalry <ul><li>- Demand conditions  : growing/declining </li></ul><ul><li>- Exit barriers : high/low </li></ul><ul><li>- ...
Substitutes <ul><li>- Products serving similar consumer needs </li></ul><ul><li>  sugar vs artificial sweetener </li></ul>...
Threat of Entry <ul><li>- Brand loyalty </li></ul><ul><li>- Economies of scale </li></ul><ul><li>- Entry barriers </li></u...
Generic Competitive Strategies <ul><li>Two basic types:  </li></ul><ul><li>- Low cost </li></ul><ul><li>- Differentiation ...
Generic Competitive Strategies <ul><li>COST leadership  </li></ul><ul><li>promoted by means such as frugality,  discipline...
Cost  OR  Differentiation <ul><li>An organizational structure that is supportive of cost leadership can be ruinous for dif...
Stuck in the Middle <ul><li>Being all things to all people can be a recipe for disaster and such firms cannot have a susta...
Risks <ul><li>Cost  : imitation </li></ul><ul><ul><ul><ul><ul><li>  technology changes    proximity to differentiation </l...
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Environ 3

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Environ 3

  1. 1. The Environment of Business III
  2. 2. Stakeholders <ul><li>Stockholders : dividend </li></ul><ul><li> price appreciation </li></ul><ul><li>Customers : product/service </li></ul><ul><li> quality </li></ul><ul><li>Employees : employment </li></ul><ul><li> wages </li></ul><ul><li> personal growth opportunity </li></ul>
  3. 3. Stakeholders <ul><li>Suppliers : revenue through sale </li></ul><ul><li> growth opportunity </li></ul><ul><li>Local community : jobs </li></ul><ul><li> civic involvement economic development </li></ul><ul><li>Society at large : economic health environment protection </li></ul>
  4. 4. The Components of a Company’s MACROENVIRONMENT Legislation and Regulation Societal Values and Lifestyles Population Demographics Technology The Economy at Large COMPANY Suppliers Substitutes Buyers New Entrants Rival Firms  IMMEDIATE INDUSTRY AND COMPETITIVE ENVIRONMENT
  5. 5. Political and Legal <ul><li>Deregulation </li></ul><ul><li>Repeal of Glass-Steigall Act 1999 </li></ul><ul><li>Tort Reform </li></ul><ul><li>Disabilities Act </li></ul>
  6. 6. Economy <ul><li>Interest rate </li></ul><ul><li>Exchange rate </li></ul><ul><li>Unemployment </li></ul><ul><li>Trend in GDP </li></ul>
  7. 7. Technology <ul><li>Reduced height of entry barrier </li></ul><ul><li>Biotechnology </li></ul><ul><li>Pollution/Global Warming </li></ul><ul><li>Wireless communication </li></ul><ul><li>Miniaturization </li></ul>
  8. 8. Socio-cultural <ul><ul><li>Health Consciousness </li></ul></ul><ul><li>Postponement of family formation </li></ul><ul><li>More women in workforce </li></ul><ul><li>Greater concern for environment </li></ul>
  9. 9. Demography <ul><li>Aging population </li></ul><ul><li>Rising affluence </li></ul><ul><li>Greater disparities in income levels </li></ul><ul><li>Geographic distribution of population </li></ul>
  10. 10. Global <ul><li>WTO </li></ul><ul><li>Currency Exchange Rate </li></ul><ul><li>Emergence of China and India </li></ul>
  11. 11. #1. Dominant Economic Traits <ul><li>Market Size </li></ul><ul><li>Scope of Competition (Local, Regional, National, Global) </li></ul><ul><li>Industry Growth Cycle (Early, Takeoff, Mature, Stagnant, Decline) </li></ul><ul><li>Number of Rivals and their relative sizes </li></ul><ul><li>Number of Buyers and their relative sizes </li></ul><ul><li>Prevalence of Backward and Forward Linkage </li></ul><ul><li>Ease of Entry and Exit </li></ul><ul><li>Pace of Technological Change </li></ul><ul><li>Learning Curve Effect </li></ul><ul><li>Capital Requirement </li></ul><ul><li>Profitability (above/below par) </li></ul>
  12. 12. #2 Porter’s Five Forces Substitute Products (of firms in other industries) Suppliers of Key Inputs Buyers Potential New Entrants Rivalry Among Competing Sellers
  13. 13. Bargaining Power of Buyers <ul><li>- Many small companies and few buyers, Large buyers </li></ul><ul><li>- Buyers can switch orders between suppliers enabling them to play one supplier against another </li></ul><ul><li>- Vertical integration is a feasible option </li></ul>
  14. 14. Suppliers <ul><li>- Product has few substitutes and are important to the buyers </li></ul><ul><li>- Products are differentiated to the extent that buyers cannot easily switch </li></ul><ul><li>- Threat of vertical integration </li></ul><ul><li>- Buying companies cannot threaten with backward integration </li></ul>
  15. 15. Rivalry <ul><li>- Demand conditions : growing/declining </li></ul><ul><li>- Exit barriers : high/low </li></ul><ul><li>- Competitive structure : fragmented, consolidated </li></ul>
  16. 16. Substitutes <ul><li>- Products serving similar consumer needs </li></ul><ul><li> sugar vs artificial sweetener </li></ul><ul><li>taxi vs bus </li></ul><ul><li>private vs public university </li></ul>
  17. 17. Threat of Entry <ul><li>- Brand loyalty </li></ul><ul><li>- Economies of scale </li></ul><ul><li>- Entry barriers </li></ul><ul><li>- Govt. regulation </li></ul>
  18. 18. Generic Competitive Strategies <ul><li>Two basic types: </li></ul><ul><li>- Low cost </li></ul><ul><li>- Differentiation </li></ul><ul><li>Three generic strategies resulting from the scope of application : </li></ul><ul><li>- Cost </li></ul><ul><li>- Differentiation </li></ul><ul><li>- Focus. </li></ul>
  19. 19. Generic Competitive Strategies <ul><li>COST leadership </li></ul><ul><li>promoted by means such as frugality, discipline and attention to details. </li></ul><ul><li>DIFFERENTIATION </li></ul><ul><li>facilitated by a culture of encouraging innovation, individualism and risk taking. </li></ul>
  20. 20. Cost OR Differentiation <ul><li>An organizational structure that is supportive of cost leadership can be ruinous for differentiation </li></ul><ul><li>e.g. </li></ul><ul><li>tight control system </li></ul><ul><li>pursuit of scale economies </li></ul><ul><li>dedication to learning curve. </li></ul>
  21. 21. Stuck in the Middle <ul><li>Being all things to all people can be a recipe for disaster and such firms cannot have a sustainable competitive advantage. </li></ul><ul><li>Whatever strategy is chosen, it has to be sustainable. </li></ul><ul><li>This can be made through making it difficult for imitators by putting up a moving target. </li></ul>
  22. 22. Risks <ul><li>Cost : imitation </li></ul><ul><ul><ul><ul><ul><li> technology changes proximity to differentiation </li></ul></ul></ul></ul></ul><ul><li>Differentiation : imitation </li></ul><ul><li> loss of attraction of differentiation base </li></ul><ul><li>Focus : imitation </li></ul><ul><ul><ul><ul><ul><li> target segment gets unattractive </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li> new focusers arrive </li></ul></ul></ul></ul></ul>

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